Colgate-Palmolive Q2 Earnings Preview: What To Expect?

by Trefis Team
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Colgate Palmolive (NYSE:CL) is scheduled to announce its fiscal second quarter results on Friday, July 21. The company reported mixed fiscal first quarter results, as its earnings per share came in ahead of expectations but revenue missed. In Q1, the company’s net sales remained flat and organic sales saw a mild uptick of 0.5% year-over-year (y-o-y), due to growth in Latin America, partly offset by weakness in North America, Europe, and Asia Pacific. Colgate witnessed an increase in its gross and operating margins despite sluggish top-line growth, primarily due to its new premium range products and successful cost savings from the “funding-the-growth” initiative.

Colgate’s advertising spend increased 1% year-over-year (y-o-y) in the first quarter. The company also indicated that there will be a full year increase as well, which should help boost its top line growth going forward. However, the decline in consumer demand and difficult macroeconomic conditions in geographies other than Latin America could weigh on the company’s results in the future. For the same reason, the company now expects its full year organic growth to be modestly below the previously reported target of 4% to 7% in 2017. In addition, the company also expects flat EPS on a GAAP basis and low single digit EPS growth on a non-GAAP basis for 2017.

Reuters’ compiled analyst estimates forecast revenues of $3.9 billion and earnings of $0.72 per share for Q2 2017, implying a growth of about 1% and 3%, respectively. The key factors which could drive Colgate’s performance in the second quarter remain investments in R&D, advertising spend and variations in consumer demand in North/South America and Europe.

Increase In Advertising Spend

Over the next few years, the consumer packaged goods market in the U.S. is forecast to see just modest growth over the next few years. With limited growth in the total market, companies will be primarily fighting for existing market share. In such cases, advertising will play a key role in gaining market share. The cost savings from Colgate’s “funding-the-growth” initiative are helping the company support its advertising and marketing operations. In Q1, the company’s advertising investment increased 1% to $400 million, which was about 10.7% of its net sales. The marketing was ramped up in all regions, and it helped the company to gain market share in the toothpaste product line. Colgate’s global toothpaste market share remains around flat year to date, to 43.8%. Going forward, better marketing and customer outreach can help Colgate shield itself in price-sensitve emerging markets.

 See our complete analysis for Colgate-Palmolive

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